There are numerous regulatory pitfalls concerning sales and use tax, of which your nonprofit may be unaware. Here are just a few:
Raffle tickets are not tax deductible.
If nonprofits don’t withhold taxes on prizes, they are required to pay the taxes themselves.
The cost of special event tickets is not 100% deductible if guests receive something in return (dinner, golf, etc.). The nonprofit is required to notify attendees of the value of the nontax-deductible portion of the ticket.
If the nonprofit gives volunteers gift cards or cash, they cease being considered volunteers and become employees.
There are several tax forms that the organization is required to fill out upon receipt of donated cars; the IRS has strict qualifiers for these types of donations.
However, the following are NOT subject to sales or use tax:
The gifting of merchandise for a true donation: an amount someone gives your organization without expecting to receive merchandise of equal value in return.
Sales of tickets for concerts, movies, plays, shows, and similar events when food and meals are not included in the ticket price.
Sales of tickets for game booths when prizes are not guaranteed to every ticket purchaser.
The sale of travel, home rentals, guide services, personal services, tutoring, and other things of value that are not physical products.
Sales of gift cards, gift certificates, and coupon books.
Membership drives and other fundraising activities that do not involve the exchange of merchandise or that include merchandise premiums of a much lower value than the donation or membership amount.
Sales of advertising that does not involve exchanges of merchandise or goods.